Wednesday, February 23, 2011

For Wall Street, 2010 may not have been the halcyon days of 2007. But it was still pretty darn good.

Cash bonuses for New York City financial-sector employees reached $20.8 billion in 2010, according to a newly released analysis from the New York comptroller’s office. Still, the bonus levels were about one-third less than in 2007, and down 8% from 2009.

(The record cash bonus year was 2006, when the state official said $34.3 billion in bonuses were paid out to New York financial workers.)

While cash bonuses declined from 2009 to 2010, overall compensation rose 6%, according to the state comptroller, as Wall Street was forced to pay out smaller cash bonuses and more stock-based pay and salaries.

“Cash bonuses are down, but that’s not an indicator of a weakness on Wall Street,” said Comptroller Thomas P. DiNapoli. “Wall Street is changing its compensation practices in response to regulatory reforms adopted in the aftermath of the greatest financial meltdown since the Great Depression. Past practices rewarded short-term gains at the expense of long-term profitability.”

Last year’s profits on Wall Street landed in second place, behind only the lofty perch reached in 2009 with the help of government bailouts, the comptroller found.

The Wall Street Journal’s analysis of Wall Street banks and securities firms earlier found total compensation and benefits reached a record $135 billion in 2010, and revenue rose a fraction from the year before to another all-time high.

The comptroller’s office counts a smaller subset of employee compensation: only cash bonuses paid out to financial employees who live and work in New York City.

The folks insisting on cuts to Social Security and Medicare have revved themselves up and are now in high gear. They see their final victory on the horizon with the possibility of a bipartisan deal involving substantial cuts to both programs. They argue that the large deficits facing the country make it imperative that we address the long-term budget problem, meaning the cost of these programs, immediately.

Before anyone prepares to surrender, it is worth remembering once again how we got into the current situation. Before the downturn the budget deficits were relatively modest. Even with the cost of fighting two wars, the Bush tax cuts and a poorly designed Medicare drug benefit the deficit was just over 1.0 percent of GDP in 2007, the last year before the downturn. This was arguably bigger than desired, but a deficit of this size certainly posed no imminent danger to the economy.

Then the economy ran off the track. The reason was the collapse of an $8 trillion housing bubble. This bubble was easy to see for people who knew basic economics and third-grade arithmetic. It was also easy to see that the bakercollapse of this bubble would derail the economy and lead to a serious downturn. That is why some of us were warning about the bubble as early as 2002.

But where were the current group of anti-deficit crusaders back in 2002-2006, when it might still have been possible to do something to stem the growth of the housing bubble before it reached such dangerous levels? Well, they were crusading against the budget deficit of course.

Peter Peterson, the Wall Street investment banker who is the patron saint and financier of much of the deficit crusade was paying for the "Fiscal Wake-Up Tour," which was supposed to alert people to the dangers of the country's budget deficit. This traveling road show of policy wonks and economists had nothing to say about the growing housing bubble that was about to explode and sink the economy.

Then we have the Washington Post, which is continuously setting new records for imbalance on this issue, for example by running six different columns by deficit hawks on the same day. As the bubble grew to ever more dangerous levels the Post had no room for those warning of the risks it posed. In fact, its main source for information on the housing market was David Lereah, the chief economist of the National Association of Realtors and the author of the book, Why the Housing Boom Will Not Bust and How You Can Profit From It.

The same story can be told about National Public Radio, the major news networks and all the politicians now leading the charge to cut Social Security and Medicare. When the country actually did face a real economic disaster, these people were nowhere in sight. They were diverting attention to other issues and dismissing those of us who tried to warn of the real danger.

Now that we are experiencing an economic disaster – 25 million people unemployed or underemployed, millions of people facing the loss of their homes, more than ten million underwater in their mortgages -- as a direct result of their incompetence, these same people are telling us again about the urgent need to cut Social Security and Medicare. The deficit hawks somehow think that their case is more compelling because of the damage done by their incompetence.

It should not work this way. In most lines of work incompetence is not a credential, it should not be one in designing economic policy either. Anyone who cares to tell us about the urgent need to deal with the deficit should first be expected to tell us how they managed to overlook the growth of an $8 trillion housing bubble. They should also be expected to tell us why they have a better understanding of the economy now than they did before the collapse of the housing bubble.

Social Security and Medicare provide essential supports to tens of millions of retirees and disabled workers. The projections are clear. The financing of Social Security poses no major problem – it is projected to be fully solvent for almost 30 years with no changes whatsoever. Medicare poses a problem only because the private health care system is broken.

Honest people talk about the need to fix the health care system. Less-honest people scream about the need to reform "entitlements." And, they think that the public somehow should listen to them because of their record of incompetence.

Supposedly responsible news organizations, like the Washington Post and National Public Radio, have gotten in the habit of telling their audiences that we have to cut Social Security and Medicare. The need for cuts in these programs is often put forward as an unquestioned fact, not just in editorials and opinion pieces, but in supposedly objective news stories. It serves the corporate interests of this country by hurting the people.

(I know I'm posting a ton of articles on this topic but it's potentially the biggest thing to happen in this country since 9-11. Maybe not yet, but like the song says, "you can't start a fire without a spark." By the time this whole thing shakes out, it will have been one of the most historically significant set of events in US history. The time to chase corporate influence out of government is now.

The government is controlled by corporate interests, look at what Obama campaigned on and what he has done since becoming president. They are two different people. And that's because when you get that close, it's too hard to see the whole picture, I guess. Is he a bad guy? i don't know, but don't think so, but he's definitely a coward for not standing up for the people and caving in to corporate interests instead.

Every bill that is proposed by either chamber of congress, with the exception of less than a handful--usually by Ron Paul or former congressman Alan Grayson or former senator Russ Feingold--is written by industry lobbyists who have a stake in the bill becoming law. They write the bill, and most often the congressman who proposes it DOESN'T EVEN READ IT before proposing it. That's why laws are filled with corporate loopholes--every single one of them. Look for yourselves, you can download a copy of any bill and every law at the Library of Congress website. ( http://thomas.loc.gov/ )

And last year, the courts made it legal for corporations to openly buy candidates, which is how you really explain the success of the tea party, which is no grass roots organization--it's a well funded (by the Koch brothers and the lobby group US Chamber of Commerce) , anti-union, anti-tax, anti-workers rights, corporate special interest-based branch of the Republican party, with plenty of corporatist Democrat enablers to sell out the people as well.

It's all about money and keeping it from the middle class, and taking away what money they do have. You can sit this out for a little while, but eventually, you won't have a choice. "Coming soon to a town near you..."--jef)

Enter Governor Scott Walker. A month into office, he was keen to establish himself as the new sheriff in town by reprising in the state of Wisconsin a simulacrum of Ronald Reagan's presidency. Painting by numbers, Scott Walker, following Reagan's first stroke, took on labour. But Walker's Patco moment (the busting of the Air Traffic Controller's union) has proved an overreach. Walker, who presents himself in a way that could be right out of Frank Capra's central casting, may find that following Reagan's recipe produces different results today. After 30 years of economic decline, workers in the United States are recognising the bankruptcy of these policies and are fighting back.

We have all seen the figures. While the American economy has grown the past three decades, labour has taken it on the chin. Meanwhile, CEOs and those in the FIRE sectors have seen their incomes grow by multiples, often subsidised at taxpayer expense, even as their reckless actions have left economic chaos in their wake. The whole while, labour has been repeatedly lectured that they are to blame for the country's economic crisis and that the rich must capture ever more rents for the economy to prosper. Even if you don't like it, workers are told, invoking Margaret Thatcher, "there is no alternative."

This past week, however, public workers surprised everyone, including themselves and their union leadership. The rank and file took the lead in these demonstrations and forced their often conservative teachers' union leadership to follow. Last Tuesday, teachers in the capitol announced their intention to hit the streets and take their students with them. In Milwaukee, Wisconsin's biggest city, teachers defied calls from school administrators and their unions to stay on the job. They marched on Madison last Wednesday in such numbers that their union leadership was forced to follow. Thus, 35 state school districts closed, as teachers and other public workers trekked to Madison in the thousands.

Frankly, most protests the past few decades, while led by well-intentioned organisers, have been tedious. We turn out for good causes, but would rather be somewhere else, and we have secretly (and sometimes openly) doubted the effectiveness of the whole exercise. Not this time. For veterans of protests in recent decades, this had an entirely different vibe. The scene has been simultaneously creative, good-humoured, joyful, peaceful, yet angry. There were no spokespersons for this movement. People organised themselves, made decisions on the ground, and acted on them – with their actions and instincts proven right by subsequent events.

The scope of the movement is broad. Students and teachers and other public employees have been joined by firefighters and cops – whose collective bargaining rights are not, in fact, under immediate threat and are therefore there out of a remarkable solidarity. Together, they have embraced each other in a new alliance that has put the history of these 1960s antagonists aside. In this new world, cops deliver food and coffee to student protesters on the floor of the Capitol rotunda. Firefighters, arriving in their soot seasoned gear or Scottish kilts, bellow on their bagpipes and sound their support for their public employee and student brethren. Wrapping themselves in the flag – and who else can do it without looking cynical or silly? – firefighters have returned this powerful symbol to organised labour.

By Saturday, the numbers had swelled to over 60,000, while the governor's Tea Party supporters could muster only a few thousand. This despite having billionaire financiers like the Koch Brothers creating astroturf websites, such as "Stand for Walker", imploring Wisconsinites to hit the streets in support of the governor.

For all this good energy and success, however, all is not well. Labour is seriously divided. The political right has invested heavily in turning private sector employees against their public sector counterparts. And, it has worked. After three decades of war on private sector unions, only 7% of non-public workers are protected. Predictably, this has translated into an almost complete erosion of their previously held health and pension plans they once enjoyed.

Today, US private sector workers have been reduced to Japanese-like long hours. Their health plans consist of HMOs providing substandard care, often having to navigate numbing bureaucracies, only to be told "coverage denied". They no longer have employer-paid pensions. Most are now on their own when it comes to retirement. Or if lucky, they may have a generous employer that gives half towards a 401k plan that merely feeds traders on Wall Street, while never delivering enough returns actually to fund their retirement.

In short, it has been a return of the mean season. Briefly, in 2008, this frustration was directed against the Republicans. Yet, the Democrats delivered no tangible gains for labour since taking power then, and now, the right has helped steer working-class anger away from Wall Street and back to Main Street's teachers and public employees. Deftly executed, private sector workers without benefits now blame workers who do have them as the cause of their deprivation. Instead of seeing the gains unions can deliver, private sector workers now take the lesson that these gains have somehow been taken at their expense – all the while ignoring the trough-feeding that continues unabated on Wall Street.

The new class war, as it is actually perceived, is not between workers and capital, but between private and public sector workers, with the fires generously stoked by the billionaire Koch brothers and rightwing money generally. One can only imagine Mr Burns of the Simpsons hatching such a scheme in caricature of capital; but this is real, and few seem to recognise the irony as they play out their scripted parts.

Monday's public holiday was likely the last of the big protests this week. Protests in the tens of thousands are not sustainable. Public workers are under pressure from their employers and teachers' unions to return to work. If Governor Walker refuses to compromise, the only weapon left in labour's arsenal is a general strike. Nobody knows if sufficient resolve exists to launch one. This movement began with Scott Walker's actions and will likely end with them. Whether labour takes this next step toward a general strike depends on his actions in the coming days and whether he will seek compromise or further inflame workers by attacking their democratic right to organise.

Walker, the son of a preacher, has always been blind to shades of grey. His past actions suggest a fundamentalist path ahead.

(It's obvious this kid was kind of troubled to be needing to use art therapy for working out his emotional responses, but arresting him and putting him in jail is how you take a kid who might be close to the edge like that, and push him over---fuck him up for a long time if not permanently. Now, that's not even considering how whacked it is they arrested him to begin with, an 11 year old. I used to draw violent pictures all the time, and I could draw pretty well for an 11 yr old, so my drawings were vividly violent with blood spatters and everything. The difference being none of the "victims" in my drawings were labeled "teacher" or anything. Lucky me.

If the drawing (which was being thrown away, by the way) bothered that teacher so much, what should have happened is that the school calls the parents and they set up a meeting without the kid present or even aware of it. That's when the parents would have told the overreacting douchebags that their kid's therapist prescribed art therapy for him to let off his emotional steam. If you want to see a successful "trial result", go and look up how successful art therapy is for children with emotional issues, people with post traumatic stress disorder, and people who have been sexually assaulted. Between their minds and their fingers, they can get out what they can't find or say the words they need to get out, move past the memory or whatever that is keeping them trapped in that place.--jef)

Nearly two years ago, the Obama Administration issued its heralded "Scientific Integrity" memorandum which said "Science and the scientific process must inform and guide decisions of my Administration."

Coming, as pointed out by NORML's Paul Armentano at AlterNet, just months after the American Medical Association called for "facilitating ... clinical research and [the] development of cannabinoid-based medicines," the memorandum stoked the hopes of pot activists who want to see the commencement of long-overdue human studies into the safety and effectiveness of medical cannabis.

But that was before cold gray reality, also known as the National Institute on Drug Abuse (NIDA), weighed in. NIDA, which oversees 85 percent of the world's research on controlled substances, reaffirmed its longstanding policy of "no medical marijuana" to The New York Times.

"As the National Institute on Drug Abuse, our focus is primarily on the negative consequencs of marijuana use," a spokesperson told the Times in 2010. "We generally do not fund research focused on the potential beneficial medical effects of marijuana."

This is the federal government's marijuana mindset, in a nutshell: That any use of marijuana is by definition "abuse"; therefore, we'll study only "negative consequences" and not medical benefits. It's a circular and hollow argument, but it still holds a lot of sway.

A review of the U.S. National Institute of Health website, clinicaltrials.gov, shows that NIDA's ban of medical marijuana research continues. Though an online search of ongoing FDA-approved clinical trial using the keyword "cannabinoids" (the active components in marijuana) yielded Armentano 65 hits worldwide, only six studies involved subjects' use of actual cannabis.

The other 59 studies used synthetic cannabinoid agonists like dronabinol or nabilone, the commercial marketed marijuana extract Sativex, or the cannabinoid receptor blocking agent Rimonabant, which keeps you from getting high.

So much for the AMA's request for clinical cannabis research.

On the other hand, preclinical (animal) trials of cannabinoids are continuing at a record pace, Armentano points out.

Many of these studies highlight the ability of cannabinoids to manage a wide range of symptoms. But even more intriguing, Armentano points out, are the results indicating the potential to halt the development of serious diseases including cancer, diabetes and multiple sclerosis.

"Nevertheless, without abrupt changes at the highest levels of government -- changes that do not appear to be forthcoming despite this administration's public demand for 'scientific integrity' -- scientists will indefinitely lack the human follow-up data necessary to adequately answer societal questions regarding cannabis safety, efficacy and proper dosage," Armentano writes.

As the Fed updated its forecast last week, the Equal Employment Opportunity Commission held a forum on discrimination against unemployed job seekers. Members of Congress had urged the commission to explore the issue, after reading press reports of numerous instances in which employers and staffing agencies refused to consider the unemployed for openings.

The message — “the unemployed need not apply” — has at times been explicitly stated in job announcements. In other cases, unemployed job seekers have reported verbal rejections after a recruiter or employer learned they were not currently working.

One of the questions for the E.E.O.C. is whether excluding unemployed applicants is illegal. Jobless workers are not specifically protected by antidiscrimination laws, but various laws outlaw hiring bias on the basis of sex, race, national origin, religion, age and disability. Since African-Americans, older workers — especially older women — and disabled workers have been hit particularly hard in the downturn, discriminating against unemployed people in those groups may violate the law.

Take African-American workers. They make up 12 percent of the work force, but 20 percent of the unemployed. Even college-educated black Americans are far more likely than their white peers to be unemployed.

Another question for the E.E.O.C. is whether it is acceptable for employers to use current employment as a proxy for relevant experience, or as an expedient to screen applicants. Testimony at the forum by Helen Norton, associate professor at the University of Colorado Law School, rebutted those and other possible justifications. Current employment is not relevant to jobs that provide on-the-job training. And even for jobs that require up-to-date skills, an interview or a test would be a more accurate and less discriminatory way to evaluate a candidate’s qualifications.

Simply excluding unemployed workers also excludes candidates who may have been employed until recently as well as those who have used a period of unemployment to receive additional training or education.

(As anti-corporate as I am, I have to say this is the most sensible pro-corporate piece I've read in over a decade. I don't like a lot of it, but it takes a sensible approach to some of the crucial issues that divide corporations and the US citizenry. What I would add, though, is give up your corporate personhood, or it will be taken away, anyway. And get the hell out of government. Your corruption will take decades to undo!--jef)

The near meltdown of the financial system and the ensuing Great Recession have been, and will remain, the defining issue for the current generation of executives. Now that the worst seems to be behind us, it’s tempting to feel deep relief—and a strong desire to return to the comfort of business as usual. But that is simply not an option. In the past three years we’ve already seen a dramatic acceleration in the shifting balance of power between the developed West and the emerging East, a rise in populist politics and social stresses in a number of countries, and significant strains on global governance systems. As the fallout from the crisis continues, we’re likely to see increased geopolitical rivalries, new international security challenges, and rising tensions from trade, migration, and resource competition. For business leaders, however, the most consequential outcome of the crisis is the challenge to capitalism itself.

That challenge did not just arise in the wake of the Great Recession. Recall that trust in business hit historically low levels more than a decade ago. But the crisis and the surge in public antagonism it unleashed have exacerbated the friction between business and society. On top of anxiety about persistent problems such as rising income inequality, we now confront understandable anger over high unemployment, spiraling budget deficits, and a host of other issues. Governments feel pressure to reach ever deeper inside businesses to exert control and prevent another system-shattering event.

My goal here is not to offer yet another assessment of the actions policymakers have taken or will take as they try to help restart global growth. The audience I want to engage is my fellow business leaders. After all, much of what went awry before and after the crisis stemmed from failures of governance, decision making, and leadership within companies. These are failures we can and should address ourselves.

In an ongoing effort that started 18 months ago, I’ve met with more than 400 business and government leaders across the globe. Those conversations have reinforced my strong sense that, despite a certain amount of frustration on each side, the two groups share the belief that capitalism has been and can continue to be the greatest engine of prosperity ever devised—and that we will need it to be at the top of its job-creating, wealth-generating game in the years to come. At the same time, there is growing concern that if the fundamental issues revealed in the crisis remain unaddressed and the system fails again, the social contract between the capitalist system and the citizenry may truly rupture, with unpredictable but severely damaging results.

Most important, the dialogue has clarified for me the nature of the deep reform that I believe business must lead—nothing less than a shift from what I call quarterly capitalism to what might be referred to as long-term capitalism. (For a rough definition of “long term,” think of the time required to invest in and build a profitable new business, which McKinsey research suggests is at least five to seven years.) This shift is not just about persistently thinking and acting with a next-generation view—although that’s a key part of it. It’s about rewiring the fundamental ways we govern, manage, and lead corporations. It’s also about changing how we view business’s value and its role in society.

There are three essential elements of the shift:

First, business and finance must jettison their short-term orientation and revamp incentives and structures in order to focus their organizations on the long term.

Second, executives must infuse their organizations with the perspective that serving the interests of all major stakeholders—employees, suppliers, customers, creditors, communities, the environment—is not at odds with the goal of maximizing corporate value; on the contrary, it’s essential to achieving that goal.

Third, public companies must cure the ills stemming from dispersed and disengaged ownership by bolstering boards’ ability to govern like owners.

None of these ideas, or the specific proposals that follow, are new. What is new is the urgency of the challenge. Business leaders today face a choice: We can reform capitalism, or we can let capitalism be reformed for us, through political measures and the pressures of an angry public. The good news is that the reforms will not only increase trust in the system; they will also strengthen the system itself. They will unleash the innovation needed to tackle the world’s grand challenges, pave the way for a new era of shared prosperity, and restore public faith in business.

1. Fight the Tyranny of Short-TermismAs a Canadian who for 25 years has counseled business, public sector, and nonprofit leaders across the globe (I’ve lived in Toronto, Sydney, Seoul, Shanghai, and now London), I’ve had a privileged glimpse into different societies’ values and how leaders in various cultures think. In my view, the most striking difference between East and West is the time frame leaders consider when making major decisions. Asians typically think in terms of at least 10 to 15 years. For example, in my discussions with the South Korean president Lee Myung-bak shortly after his election in 2008, he asked us to help come up with a 60-year view of his country’s future (though we settled for producing a study called National Vision 2020.) In the U.S. and Europe, nearsightedness is the norm. I believe that having a long-term perspective is the competitive advantage of many Asian economies and businesses today.

Myopia plagues Western institutions in every sector. In business, the mania over quarterly earnings consumes extraordinary amounts of senior time and attention. Average CEO tenure has dropped from 10 to six years since 1995, even as the complexity and scale of firms have grown. In politics, democracies lurch from election to election, with candidates proffering dubious short-term panaceas while letting long-term woes in areas such as economic competitiveness, health, and education fester. Even philanthropy often exhibits a fetish for the short term and the new, with grantees expected to become self-sustaining in just a few years.

Lost in the frenzy is the notion that long-term thinking is essential for long-term success. Consider Toyota, whose journey to world-class manufacturing excellence was years in the making. Throughout the 1950s and 1960s it endured low to nonexistent sales in the U.S.—and it even stopped exporting altogether for one bleak four-year period—before finally emerging in the following decades as a global leader. Think of Hyundai, which experienced quality problems in the late 1990s but made a comeback by reengineering its cars for long-term value—a strategy exemplified by its unprecedented introduction, in 1999, of a 10-year car warranty. That radical move, viewed by some observers as a formula for disaster, helped Hyundai quadruple U.S. sales in three years and paved the way for its surprising entry into the luxury market.

To be sure, long-term perspectives can be found in the West as well. For example, in 1985, in the face of fierce Japanese competition, Intel famously decided to abandon its core business, memory chips, and focus on the then-emerging business of microprocessors. This “wrenching” decision was “nearly inconceivable” at the time, says Andy Grove, who was then the company’s president. Yet by making it, Intel emerged in a few years on top of a new multi-billion-dollar industry. Apple represents another case in point. The iPod, released in 2001, sold just 400,000 units in its first year, during which Apple’s share price fell by roughly 25%. But the board took the long view. By late 2009 the company had sold 220 million iPods—and revolutionized the music business.

It’s fair to say, however, that such stories are countercultural. In the 1970s the average holding period for U.S. equities was about seven years; now it’s more like seven months. According to a recent paper by Andrew Haldane, of the Bank of England, such churning has made markets far more volatile and produced yawning gaps between corporations’ market price and their actual value. Then there are the “hyperspeed” traders (some of whom hold stocks for only a few seconds), who now account for 70% of all U.S. equities trading, by one estimate. In response to these trends, executives must do a better job of filtering input, and should give more weight to the views of investors with a longer-term, buy-and-hold orientation.

If they don’t, short-term capital will beget short-term management through a natural chain of incentives and influence. If CEOs miss their quarterly earnings targets, some big investors agitate for their removal. As a result, CEOs and their top teams work overtime to meet those targets. The unintended upshot is that they manage for only a small portion of their firm’s value. When McKinsey’s finance experts deconstruct the value expectations embedded in share prices, we typically find that 70% to 90% of a company’s value is related to cash flows expected three or more years out. If the vast majority of most firms’ value depends on results more than three years from now, but management is preoccupied with what’s reportable three months from now, then capitalism has a problem.

Some rightly resist playing this game. Unilever, Coca-Cola, and Ford, to name just a few, have stopped issuing earnings guidance altogether. Google never did. IBM has created five-year road maps to encourage investors to focus more on whether it will reach its long-term earnings targets than on whether it exceeds or misses this quarter’s target by a few pennies. “I can easily make my numbers by cutting SG&A or R&D, but then we wouldn’t get the innovations we need,” IBM’s CEO, Sam Palmisano, told us recently. Mark Wiseman, executive vice president at the Canada Pension Plan Investment Board, advocates investing “for the next quarter century,” not the next quarter. And Warren Buffett has quipped that his ideal holding period is “forever.” Still, these remain admirable exceptions.

To break free of the tyranny of short-termism, we must start with those who provide capital. Taken together, pension funds, insurance companies, mutual funds, and sovereign wealth funds hold $65 trillion, or roughly 35% of the world’s financial assets. If these players focus too much attention on the short term, capitalism as a whole will, too.

In theory they shouldn’t, because the beneficiaries of these funds have an obvious interest in long-term value creation. But although today’s standard practices arose from the desire to have a defensible, measurable approach to portfolio management, they have ended up encouraging shortsightedness. Fund trustees, often advised by investment consultants, assess their money managers’ performance relative to benchmark indices and offer only short-term contracts. Those managers’ compensation is linked to the amount of assets they manage, which typically rises when short-term performance is strong. Not surprisingly, then, money managers focus on such performance—and pass this emphasis along to the companies in which they invest. And so it goes, on down the line.

As the stewardship advocate Simon Wong points out, under the current system pension funds deem an asset manager who returns 10% to have underperformed if the relevant benchmark index rises by 12%. Would it be unthinkable for institutional investors instead to live with absolute gains on the (perfectly healthy) order of 10%—especially if they like the approach that delivered those gains—and review performance every three or five years, instead of dropping the 10-percenter? Might these big funds set targets for the number of holdings and rates of turnover, at least within the “fundamental investing” portion of their portfolios, and more aggressively monitor those targets? More radically, might they end the practice of holding thousands of stocks and achieve the benefits of diversification with fewer than a hundred—thereby increasing their capacity to effectively engage with the businesses they own and improve long-term performance? Finally, could institutional investors beef up their internal skills and staff to better execute such an agenda? These are the kinds of questions we need to address if we want to align capital’s interests more closely with capitalism’s.
2. Serve Stakeholders, Enrich ShareholdersThe second imperative for renewing capitalism is disseminating the idea that serving stakeholders is essential to maximizing corporate value. Too often these aims are presented as being in tension: You’re either a champion of shareholder value or you’re a fan of the stakeholders. This is a false choice.

The inspiration for shareholder-value maximization, an idea that took hold in the 1970s and 1980s, was reasonable: Without some overarching financial goal with which to guide and gauge a firm’s performance, critics feared, managers could divert corporate resources to serve their own interests rather than the owners’. In fact, in the absence of concrete targets, management might become an exercise in politics and stakeholder engagement an excuse for inefficiency. Although this thinking was quickly caricatured in popular culture as the doctrine of “greed is good,” and was further tarnished by some companies’ destructive practices in its name, in truth there was never any inherent tension between creating value and serving the interests of employees, suppliers, customers, creditors, communities, and the environment. Indeed, thoughtful advocates of value maximization have always insisted that it is long-term value that has to be maximized.

Capitalism’s founding philosopher voiced an even bolder aspiration. “All the members of human society stand in need of each others assistance, and are likewise exposed to mutual injuries,” Adam Smith wrote in his 1759 work, The Theory of Moral Sentiments. “The wise and virtuous man,” he added, “is at all times willing that his own private interest should be sacrificed to the public interest,” should circumstances so demand.

Smith’s insight into the profound interdependence between business and society, and how that interdependence relates to long-term value creation, still reverberates. In 2008 and again in 2010, McKinsey surveyed nearly 2,000 executives and investors; more than 75% said that environmental, social, and governance (ESG) initiatives create corporate value in the long term. Companies that bring a real stakeholder perspective into corporate strategy can generate tangible value even sooner. (See the sidebar “Who’s Getting It Right?”)

Creating direct business value, however, is not the only or even the strongest argument for taking a societal perspective. Capitalism depends on public trust for its legitimacy and its very survival. According to the Edelman public relations agency’s just-released 2011 Trust Barometer, trust in business in the U.S. and the UK (although up from mid-crisis record lows) is only in the vicinity of 45%. This stands in stark contrast to developing countries: For example, the figure is 61% in China, 70% in India, and 81% in Brazil. The picture is equally bleak for individual corporations in the Anglo-American world, “which saw their trust rankings drop again last year to near-crisis lows,” says Richard Edelman.

How can business leaders restore the public’s trust? Many Western executives find that nothing in their careers has prepared them for this new challenge. Lee Scott, Walmart’s former CEO, has been refreshingly candid about arriving in the top job with a serious blind spot. He was plenty busy minding the store, he says, and had little feel for the need to engage as a statesman with groups that expected something more from the world’s largest company. Fortunately, Scott was a fast learner, and Walmart has become a leader in environmental and health care issues.
Tomorrow’s CEOs will have to be, in Joseph Nye’s apt phrase, “tri-sector athletes”: able and experienced in business, government, and the social sector. But the pervading mind-set gets in the way of building those leadership and management muscles. “Analysts and investors are focused on the short term,” one executive told me recently. “They believe social initiatives don’t create value in the near term.” In other words, although a large majority of executives believe that social initiatives create value in the long term, they don’t act on this belief, out of fear that financial markets might frown. Getting capital more aligned with capitalism should help businesses enrich shareholders by better serving stakeholders.

3. Act Like You Own the PlaceAs the financial sector’s troubles vividly exposed, when ownership is broadly fragmented, no one acts like he’s in charge. Boards, as they currently operate, don’t begin to serve as a sufficient proxy. All the Devils Are Here, by Bethany McLean and Joe Nocera, describes how little awareness Merrill Lynch’s board had of the firm’s soaring exposure to subprime mortgage instruments until it was too late. “I actually don’t think risk management failed,” Larry Fink, the CEO of the investment firm BlackRock, said during a 2009 debate about the future of capitalism, sponsored by the Financial Times. “I think corporate governance failed, because...the boards didn’t ask the right questions.”

What McKinsey has learned from studying successful family-owned companies suggests a way forward: The most effective ownership structure tends to combine some exposure in the public markets (for the discipline and capital access that exposure helps provide) with a significant, committed, long-term owner. Most large public companies, however, have extremely dispersed ownership, and boards rarely perform the single-owner-proxy role. As a result, CEOs too often listen to the investors (and members of the media) who make the most noise. Unfortunately, those parties tend to be the most nearsighted ones. And so the tyranny of the short term is reinforced.

The answer is to renew corporate governance by rooting it in committed owners and by giving those owners effective mechanisms with which to influence management. We call this ownership-based governance, and it requires three things:
More-effective boards.In the absence of a dominant shareholder (and many times when there is one), the board must represent a firm’s owners and serve as the agent of long-term value creation. Even among family firms, the executives of the top-performing companies wield their influence through the board. But only 43% of the nonexecutive directors of public companies believe they significantly influence strategy. For this to change, board members must devote much more time to their roles. A government-commissioned review of the governance of British banks last year recommended an enormous increase in the time required of nonexecutive directors of banks—from the current average, between 12 and 20 days annually, to between 30 and 36 days annually. What’s especially needed is an increase in the informal time board members spend with investors and executives. The nonexecutive board directors of companies owned by private equity firms spend 54 days a year, on average, attending to the company’s business, and 70% of that time consists of informal meetings and conversations. Four to five days a month obviously give a board member much greater understanding and impact than the three days a quarter (of which two may be spent in transit) devoted by the typical board member of a public company.

Boards also need much more relevant experience. Industry knowledge—which four of five nonexecutive directors of big companies lack—helps boards identify immediate opportunities and reduce risk. Contextual knowledge about the development path of an industry—for example, whether the industry is facing consolidation, disruption from new technologies, or increased regulation—is highly valuable, too. Such insight is often obtained from experience with other industries that have undergone a similar evolution.

In addition, boards need more-effective committee structures—obtainable through, for example, the establishment of a strategy committee or of dedicated committees for large business units. Directors also need the resources to allow them to form independent views on strategy, risk, and performance (perhaps by having a small analytical staff that reports only to them). This agenda implies a certain professionalization of nonexecutive directorships and a more meaningful strategic partnership between boards and top management. It may not please some executive teams accustomed to boards they can easily “manage.” But given the failures of governance to date, it is a necessary change.
More-sensible CEO pay.An important task of governance is setting executive compensation. Although 70% of board directors say that pay should be tied more closely to performance, CEO pay is too often structured to reward a leader simply for having made it to the top, not for what he or she does once there. Meanwhile, polls show that the disconnect between pay and performance is contributing to the decline in public esteem for business.

CEOs and other executives should be paid to act like owners. Once upon a time we thought that stock options would achieve this result, but stock-option- based compensation schemes have largely incentivized the wrong behavior. When short-dated, options lead to a focus on meeting quarterly earnings estimates; even when long-dated (those that vest after three years or more), they can reward managers for simply surfing industry- or economy-wide trends (although reviewing performance against an appropriate peer index can help minimize free rides).

Moreover, few compensation schemes carry consequences for failure—something that became clear during the financial crisis, when many of the leaders of failed institutions retired as wealthy people.

There will never be a one-size-fits-all solution to this complex issue, but companies should push for change in three key areas:

They should link compensation to the fundamental drivers of long-term value, such as innovation and efficiency, not just to share price.

They should extend the time frame for executive evaluations—for example, using rolling three-year performance evaluations, or requiring five-year plans and tracking performance relative to plan. This would, of course, require an effective board that is engaged in strategy formation.

They should create real downside risk for executives, perhaps by requiring them to put some skin in the game. Some experts we’ve surveyed have privately suggested mandating that new executives invest a year’s salary in the company.

Redefined shareholder “democracy.”The huge increase in equity churn in recent decades has spawned an anomaly of governance: At any annual meeting, a large number of those voting may soon no longer be shareholders. The advent of high-frequency trading will only worsen this trend. High churn rates, short holding periods, and vote-buying practices may mean the demise of the “one share, one vote” principle of governance, at least in some circumstances. Indeed, many large, top-performing companies, such as Google, have never adhered to it. Maybe it’s time for new rules that would give greater weight to long-term owners, like the rule in some French companies that gives two votes to shares held longer than a year. Or maybe it would make sense to assign voting rights based on the average turnover of an investor’s portfolio. If we want capitalism to focus on the long term, updating our notions of shareholder democracy in such ways will soon seem less like heresy and more like common sense.

While I remain convinced that capitalism is the economic system best suited to advancing the human condition, I’m equally persuaded that it must be renewed, both to deal with the stresses and volatility ahead and to restore business’s standing as a force for good, worthy of the public’s trust. The deficiencies of the quarterly capitalism of the past few decades were not deficiencies in capitalism itself—just in that particular variant. By rebuilding capitalism for the long term, we can make it stronger, more resilient, more equitable, and better able to deliver the sustainable growth the world needs. The three imperatives outlined above can be a start along this path and, I hope, a way to launch the conversation; others will have their own ideas to add.

The kind of deep-seated, systemic changes I’m calling for can be achieved only if boards, business executives, and investors around the world take responsibility for bettering the system they lead. Such changes will not be easy; they are bound to encounter resistance, and business leaders today have more than enough to do just to keep their companies running well. We must make the effort regardless. If capitalism emerges from the crisis vibrant and renewed, future generations will thank us. But if we merely paper over the cracks and return to our precrisis views, we will not want to read what the historians of the future will write. The time to reflect—and to act—is now.

Environmental, social, and governance initiatives can serve a wide range of stakeholders and benefit shareholders. Companies can:
Create new products and marketsThree years ago Verizon developed a phone and a calling plan to address the needs of seniors and the disabled. It sold 400,000 of the new phones and doubled senior customers’ wireless spending.
Drive operational efficiencyDuring the past several years Walmart has been working to establish tough new targets for reducing suppliers’ packaging waste. Its goal—to trim packaging by 5% between 2008 and 2013—should generate $12 billion in savings across its global supply chain.
Motivate and retain employeesNovo Nordisk’s mission to end diabetes would, if accomplished, put the company out of business. Yet the firm has an enormously committed workforce, not least in developing countries and especially in China, where its initiatives (such as the first Chinese-language website for people with diabetes) have helped it gain a 70% market share.
Spur innovationGE’s “bottom of the pyramid” development of low-cost medical imaging for the Indian and Chinese markets led to efficiency breakthroughs in design and engineering and to new products that now account for growing sales in advanced nations as well. (See “How GE Is Disrupting Itself,” HBR October 2009.)
Retain access to inputsCoca-Cola has devised a sophisticated global water strategy that ensures that local concerns as well as local supply and demand issues are integrated into the long-range plans for each plant. This approach helps avoid both public backlashes over water use and operational problems due to water shortages.

(The Tea Party's support for the corporations and Wisconsin's, Ohio's, and Tennessee's union busting activities pretty much seals the deal that they suck, their movement is a bogus sham, and they are nothing but corporate stooges, sucking up to their corporate masters.--jef)

By Joshua Holland, AlterNet
Posted on February 21, 2011

The drama unfolding in Wisconsin is now in its second week, and as tens of thousands of workers and their supporters ring the state's capitol expressing outrage over Union-busting Republican Governor Scott Walker's bill, the impasse doesn't appear to be headed towards a resolution anytime soon. AlterNet is staying on top of this momentous story, and here are the latest developments.

Update:
Scott Walker is pushing a hard-right agenda, and the one thing he's said that is accurate is that this should come as no surprise to anyone who paid attention during his campaign.
David Dayen at Firedoglake noted this today:

I got a sense from Sen. Chris Larson and some others in Wisconsin that the Governor and his Republican allies had run amok in the Capitol before attention was paid to their machinations due to the assault on public workers. But I didn’t realize how bad it was until I saw this come across the transom:Madison – Today, Governor Scott Walker signed Special Session Assembly Bill 5 which requires a 2/3s vote to pass tax rate increases on the income, sales or franchise taxes.“I went to work today, met with my cabinet, and signed legislation that will help government operate within its means,” Governor Scott Walker said.

These proposals, which I wrote about in November, allow a minority to hold state legislatures hostage. Law-makers can't raise taxes when necessary, so they are forced to cut -- it's a method of entrenching conservative policies and making elections moot.

In other words, Walker has already destroyed Wisconsin state government for a generation to come. We learned that the hard way here in California.

Update:
According to a new USA Today/ Gallup poll, 61 percent of respondents oppose limits on union bargaining power.

Update:
CNN estimates 10-15,000 protesters in Ohio. Via Twitter, Matt Stoller sends this pic of a demo he describes as a "Fairly large block-long Cheesehead rally outside Fox News" headquarters in New York:

Update:
Let's talk numbers. The National Institute for Retirement Security conducted a study (PDF) using data from the Bureau of Labor Statistics and came up with this finding:

Benefits make up a slightly larger share of compensation for the state and local sector. But even after accounting for the value of retirement, healthcare, and other benefits, state and local employees earn less than private sector counterparts. On average, total compensation is 6.8% lower for state employees and 7.4% lower for local employees than for comparable private sector employees.

The Economic Policy Institute put out a fact-sheet last week (PDF) that noted that wages in the public sector has grown more slowly than it has for comparable workers in the private:

The total growth of inflation-adjusted wages for high school educated workers in the private sector between 1989 and 2010 was 4.8%, slightly faster than the 2.6% wage growth for comparable public employees. This means that inflation-adjusted wages have been essentially flat for two decades for high school educated workers regardless of sector. In contrast, productivity growth, reflecting the increase in the economy’s overall gains, grew 62.5% in the 1989-2010 period.
For those with a bachelor’s degree (but no further education), inflation-adjusted wages grew by 19.5% in the private sector from 1989 to 2010, far more than the 9.5% growth seen by state employees.

Update:
A common refrain from people wishing to destroy public employees' unions is that their workers are 'demanding more from the tax-payers.' It's a testament to how confused the Right is about the role of government.

Public employees are not demanding anything from "the taxpayer." They are workers demanding fair wages from their bosses.

We live in a democracy, and tax-payers get to participate by voting. If, for example, one doesn't like our public education system, one can vote for a representative who shares his or her view on the subject.

However, a sizable majority of Americans do want a decent public school system. It's a democracy, so we'll have public schools. That's the end of the role of the tax-payer in this story.
Now, our schools need to hire teachers, and those teachers are workers, and our school system is their employer. They're not making any demands on the tax-payer -- the tax-payers role was deciding to have public education in the first place. And the same can be said of garbage collection, law enforcement or anything else the public sector does.

Update:
Nationwide protests are scheduled for this Saturday to fight back against balancing the budget on the backs of working people while corporate America shelters hundreds of billions in potential tax revenues. Find out more at US Uncut.

Over at the HuffPo, Van Jones argues that we may be seeing the emergence of a new movement centered on social and economic justice.

Reinvigorated by the idealism and fighting spirit on display right now in America's heartland, the movement for "hope and change" has a rare, second chance. It can renew itself and become again a national force with which to be reckoned.
Over the next hours and days, all who love this country need to do everything possible to spread the "spirit of Madison" to all 50 states. This does not mean we need to occupy 50 state capitol buildings; things elsewhere are not yet that dire. But this weekend, the best of America should rally on the steps of every statehouse in the union.
Moveon.org and others have issued just this kind of call to action; everyone should prioritize responding and turning out in large numbers.
On Saturday, the powers-that-be (in both parties) should see a rainbow force coming together: organized workers, business leaders, veterans, students and youth, faith leaders, civil rights fighters, women's rights champions, immigrant rights defenders, LGBTQ stalwarts, environmentalists, academics, artists, celebrities, community activists, elected officials and more -- all standing up for what's right.

Update:
Here's The Uptake on Scott Walker threatening layoffs if he doesn't get his way today:

Wisconsin Governor Scott Walker said today if his proposal to eliminate collective bargaining on all issues but pay does not become law, Wisconsin will need to layoff 1,500 state employees. As Walker spoke to the media, thousands of protesters converged on the Capitol, eventually becoming so loud that they could be heard where the Governor was.

Walker said there was “no room for compromise” on the collective bargaining issue. “We’re broke”, said Walker.

Read on to see how mendacious this claim really is -- the state isn't broke and stripping workers of their right to negotiate would result in insignificant savings for the state budget.

Update:
The United States' last general strike -- with workers from different industries all walking out at once -- occurred in 1934. They're illegal under the Taft-Hartley Act enacted in the 1940s.
But last night, the Madison AFL-CIO local issued a press release raising that possibility:

Motion 1: The SCFL endorses a general strike, possibly for the day Walker signs his “budget repair bill,” and requests the Education Committee immediately begin educating affiliates and members on the organization and function of a general strike.Motion 2: The SCFL goes on record as opposing all provisions contained in Walker’s “budget repair bill,” including but not limited to, curtailed bargaining rights and reduced wages, benefits, pensions, funding for public education, changes to medical assistance programs, and politicization of state government agencies.

Mike Elk notes that because of Taft-Hartley, "the key word is the phrase 'begin educating affiliates and members on the organization and function of a general strike'.

Many private sector unions would not go out on a general strike out of fear of being of sued by their employers. However, local labor observers say many public sector unions and some of the construction unions would go out on a strike. Threatening a general strike creates even more pressure for Scott Walker in the business community.

Update:
A major protest is being organized in Columbus, Ohio this afternoon. Ohio Dems:

Now is the time. If ever there was a time to show up, stand up and let our voices be heard, it is now. The fate of Ohio’s middle class is on the line at the Ohio Statehouse.

[Today,] the legislature is scheduled to move on Senate Bill 5, a bill that would strip away collective bargaining rights, hurt the middle class, kill jobs and destroy communities. I want to invite you to come to the Statehouse in Columbus on Tuesday to voice your opposition to this bill. Please click here and let us know that you can attend.

Update:
It's day 2 of labor's show-down against "right to work for lower wages" legislation in Indiana. As they have in Wisconsin, Democratic lawmakers have left the state to prevent a vote. According to the Indianapolis Star-Tribune, Democrats are headed to Illinois, though it was possible some also might go to Kentucky.

They need to go to a state with a Democratic governor to avoid being taken into police custody and returned to Indiana.
The House was came into session this morning, with only two of the 40 Democrats present. Those two were needed to make a motion, and a seconding motion, for any procedural steps Democrats would want to take to ensure Republicans don’t do anything official without quorum.

Hundreds of workers are reportedly staging a sit-in outside the capitol building.

Update:

Wisconsin Dems say Walker has cut off internet access to opposition websites in the capitol building. Maybe calling him "Hosni Walker" isn't so uncivil after all.

Update:
The more we learn about Scott Walker and his proposal, the clearer it becomes that this has little, if anything, to do with balancing Wisconsin's budget.

We reported earlier that Walker single-handedly killed high-speed rail between Milwaukee and Madison, and is trying to establish regulations that would make wind-farms very difficult to set up in Wisconsin. But there's more to this story, as Dave Johnson reported yesterday for PRWatch. Tucked into Walker's bill is a provision which allows the sale of "any state−owned heating, cooling, and power plant ... with or without solicitation of bids."

And just who is the likely recipient of no-bid state sales of publicly-owned heating, cooling and power facilities? That would most likely be companies controlled by the brothersDavid and Charles Koch, owners of Koch Industries, and big financial supporters of Governor Scott Walker. The Koch brothers have also funded groups that are attempting to create a crisis atmosphere over the state's budget, leading up to the attempt to pass this bill that could result in the low-cost transfer of state assets to their company.
In addition to the Koch brothers being backers and big financial supporters of Governor Walker, they are also primary funders of the Tea Party via their general financial support for Americans for Prosperity, which David Koch Chairs.

So, largely un-reported is this stealthy provision that allows no-bid privatization of state-owned energy infrastructure. And Walker has a history --not a good one -- privatizing state agencies. As Mother Jonesreported, "as Milwaukee County executive, Walker fought to fire the county's unionized prison guards and replace them with private contractors."

Walker's initial attempt to sweep out unionized prison guards was blocked by the Milwaukee County board. But in March 2010, he unilaterally rammed through the measure under the guise of a budget crisis, a power grab that angered officials in Milwaukee County. To replace the union workers Walker hired Wackenhut, a controversy-riddled British contractor. (It was employees of a Wackenhut subsidiary at the heart of the Kabul embassy scandal, where, asMother Jones first reported, contractors were revealed to be a crew of drunken, debaucherous hooligans that hazed other contractors and partied like out-of-control frat brothers. Think vodka butt shots.) In another controversy, Wackenhut security guards were videotaped sleeping on the job at a nuclear power plant in Pennsylvania, revelations that shook the industry and resulted in a heap of criticism for the company.

How did it work out in the end? As privatization for its own sake often does, it ended in a (costly) disaster.

Walker's hiring of Wackenhut quickly became a nightmare. After ramming through the proposal, an arbiter said Walker overreached, and repealed the firing of the unionized prison guards. That arbiter ordered Milwaukee County to rehire the union workers and repay them for the wages they lost, costing the county upwards of $500,000.

Update (by AlterNet Staff):
Yesterday Wisconsin Governor Scott Walker vowed to continue his fight against public employee unions for the sake of the "taxpayers of the state." But a new poll suggests that Walker is losing public support in his stand-off with Wisconsin's teachers and other state workers. Here's a breakdown of a new GQR Research poll by Talking Points Memo:

Sixty-two percent of respondents to the poll said they view public employees favorably, while just 11% said they had an unfavorable view of the workers whose benefits packages Walker says are breaking the state budget.
Meanwhile, just 39% of respondents had a favorable view of Walker, while 49% had an unfavorable view of the freshman Republican governor. Voters are split on his job performance, with 51% saying they disapprove of the job Walker has done.
"Since the protests began, Governor Walker has seen real erosion in his standing," the GQR pollsters write in their analysis, "with a majority expressing disapproval of his job performance and disagreement with his agenda."

The poll was sponsored by the AFL-CIO, so there's a possibility of bias. But as Josh Marshall points out, the polling company is respected.

Update:

All of the focus this week has been on Scott Walker's antipathy towards labor. But at Mother Jones' Andy Kroll reports, "Walker has a history of striking hard-line positions, and nowhere is that more true than on the most controversial social issue of them all: abortion."

Walker's nearly nine-year record in the Wisconsin Assembly, the legislature's lower house, reads like a pro-life handbook, an all-out assault on abortion rights. What's more, the many anti-abortion initiatives he backed are perfectly in sync with the assault on reproductive rights now unfolding on the national level, where House Republicans recently gutted fundingfor Planned Parenthood and controversially tried to redefine "rape" to limit the long-standing exceptions to the Hyde Amendment, which bans federal funding for abortions except in cases of rape, incest, or to save a mother's life.

Update:
Last Friday, Walker told a Milwaukee radio station that his state's public employees right to bargain collectively would be "fully intact" under his proposal. It took some nerve to make the claim, prompting the Journal-Sentinel's fact-checkers to rate Walker's claim as a "pants on fire" falsehood.

Many state, local government and public school employees -- including those represented by the largest state workers union -- have said they would be willing to pay more for pensions and health insurance, as called for in a budget-repair bill introduced by Walker.

But the workers continue to protest provisions in the bill that would restrict most public employee unions to bargaining only over wages, and then only within caps.

It’s the central issue in the protests, which have drawn national attention.

Update:
Walker has announced that he will address Wisconsinites in a "fireside chat," at 6pm on Tuesday evening.

Update:
Folks in the Badger State sure love their Packers, and several have come out in support of the protesters. Sports writer Philip Bondy:

Last week, seven current and former Packers - Brady Poppinga, Jason Spitz, Curtis Fuller, Chris Jacke, Charles Jordan, Bob Long and Steve Okoniewski - also expressed support for the public employees. Maybe that doesn't sound like a revolution, but among athletes this is a considerable step forward in understanding that community extends beyond the goal line. We've learned long ago that stars such as Michael Jordan and Tiger Woods would film a thousand commercials before they'd even consider taking a meaningful stand on any social issue.

The sad truth is that politicians are more likely to be swayed by the popularity and fame of professional athletes than they are of any mere worker. The Packers have considerable clout as an institution, even more so now with a Super Bowl trophy in hand. This is a public-owned franchise. Viewed in that light, the Packer players are state employees, not so terribly unlike those picketing along State Street and Capitol Square.

Today, Charles Woodson lent his support to the state's public workers, prompting former NFL Players' Association head (and Madison resident) Ed Garvey to note, "Woodson is in a fight with Walker-like NFL owners. He needs his union, we need ours! Thank you, Charles Woodson."

Wisconsin imports all its coal and oil, yet has the potential to produce all its energy using renewable resources. Scott Walker continues to chase away cleaner energy options. Firmly entrenched in the paradigms of fossil-fuel based automotive transportation, he single-handedly killed high-speed rail between Milwaukee and Madison. Now Walker is setting his sights on killing wind-energy and has has proposed legislation would require wind turbines to be constructed with a 1,800-foot setback from neighboring property lines.

Update: Talking Points Memoreported that Wisconsin Dems and unionists were concerned that the Republican majority had found an end-run around them, and might pass the bill while they remained out of state. But in a subsequent update, Josh Marshall reported, "the Republican Senate Majority Leader Scott Fitzgerald is saying he won't take the legislation up until the Democrats come back."

The backstory seems to be that there's a moderate faction among the Republican senators. And they are apparently refusing to go ahead with that approach. We don't know that latter point for certain yet. But it seems to be the most logical inference to draw from Fitzgerald's statement. And his clear ruling out of such an option seems to leave the standoff in place, with no clear option for Walker absent some agreement with the Democrats.

Update (by AlterNet Staff):
According to sources on the scene, pro-union protesters were on every floor of the Indiana state house this morning to fight against a union-busting bill similar to that being pushed in Wisconsin. The St. Louis Courier-Dispatch reports, "An Indiana House committee approved legislation Monday to let employees opt out of paying union dues or fees, despite protests from union workers who crowded into the tiny meeting room and yelled and booed as lawmakers voted 8-5 to send the bill to the House floor. The so-called right-to-work bill would ban employers from requiring workers to join unions or pay dues or other fees to unions. Some businesses agree to such fees in contacts with unions."

The news out of Wisconsin today is that the state's moderate Republicans have tossed out something of a compromise to the protesters. The proposed compromise "calls for most collective bargaining rights of public-employee unions to be eliminated—per Mr. Walker's bill—but then reinstated in 2013." The state's Democrats are rejecting the offer, noting that unions have already compromised enough, having made concessions on their pension and healthcare. As Sen. Jon Erpenbach noted, "If it's OK to collectively bargain in 2013, why isn't it OK today?"

Meanwhile, Governor Walker continues to be a tool, releasing three bogus reasons why "collective bargaining is a fiscal issue." Here's FireDogLake on why his reasoning is so weak:

One concerns what health care plan teachers sign up for, which is mainly an issue of the Governor seemingly wanting to strip the health care choices of workers (if you like what you have, you can keep it!). The next is some gotcha issue about Viagra in Milwaukee, which state courts ruled against a few years later. The third, and the only state issue, is overtime rules for corrections officers. Somehow I’m not convinced that this is such a scourge. The President of the Wisconsin State Senate didn’t do the job on that either today.

Grasping at straws, that.

Update (by AlterNet Staff): Amid much excellent coverage of the Wisconsin union protests, Paul Krugman's column in the Times yesterday is worthy of a close read:

[W]hat’s happening in Wisconsin isn’t about the state budget, despite [Wisconsin Governor Scott] Walker’s pretense that he’s just trying to be fiscally responsible. It is, instead, about power. What Mr. Walker and his backers are trying to do is to make Wisconsin — and eventually, America — less of a functioning democracy and more of a third-world-style oligarchy. And that’s why anyone who believes that we need some counterweight to the political power of big money should be on the demonstrators’ side.

Indeed. He goes on:

[I]t’s not about the budget; it’s about the power.

In principle, every American citizen has an equal say in our political process. In practice, of course, some of us are more equal than others. Billionaires can field armies of lobbyists; they can finance think tanks that put the desired spin on policy issues; they can funnel cash to politicians with sympathetic views (as the Koch brothers did in the case of Mr. Walker). On paper, we’re a one-person-one-vote nation; in reality, we’re more than a bit of an oligarchy, in which a handful of wealthy people dominate.

Given this reality, it’s important to have institutions that can act as counterweights to the power of big money. And unions are among the most important of these institutions. You don’t have to love unions, you don’t have to believe that their policy positions are always right, to recognize that they’re among the few influential players in our political system representing the interests of middle- and working-class Americans, as opposed to the wealthy.

1. Democratic Lawmakers in Exile Want Fair Negotiations

According to the Huffington Post, the Democratic lawmakers who crossed state lines last week to block the passage of Walker's bill aren't going to return until the governor agrees to sit down and negotiate in good faith. Monday is the fifth day of their self-imposed exile. "We'll be here until Gov. Walker decides that he wants to talk," Sen. Tim Carpenter (D) told Amanda Terkel on Saturday.

He added that so far, the governor refuses to meet with them or even return the phone calls from members of the Democratic caucus.

"He's just hard-lined -- will not talk, will not communicate, will not return phone calls," said Carpenter. "In a democracy, I thought we were supposed to talk. But the thing is, he's been a dictator, and just basically said this is the only thing. No amendments, and it's going to be that way."

On Sunday, AlterNet posted video of Wisconsin State Rep. Gordon Hintz, D-Oshkosh, angrily chastising the GOP majority for pushing Scott Walker's union-busting bill through without giving lawmakers time to read it or allowing for public hearings of any kind. You can watch it here.

2. Massive Crowds for State Workers as a Handful of Tea Partiers Arrive
Last week, Mother Jonesreported that masses of Tea Partiers would be bussed in by American Majority, a corporate-backed right-wing astro-turf operation, causing many progressive commenters to note the irony of the Tea Party's new-found devotion to Big Government. As it turned out, approximately 2,000 arrived -- along with Andrew Breitbart -- only to find themselves out-numbered by pro-union demonstrators by a ratio as high as 35 to 1.

Fox "News" spent the whole weekend advancing the specter of thuggish unionists "rioting" at the capitol, which as usual turned out to be wrong. The Madison police Department issued a release after Saturday's protests praising the demonstrators:

On behalf of all the law enforcement agencies that helped keep the peace on the Capitol Square Saturday, a very sincere thank you to all of those who showed up to exercise their First Amendment rights. You conducted yourselves with great decorum and civility, and if the eyes of the nation were upon Wisconsin, then you have shown how democracy can flourish even amongst those who passionately disagree.

According to MPD, there were a few minor scuffles, but no major incidents and no arrests through Saturday night. Kristine Mattis, who blogs at "Rebelpleb," added that "rumblings that protesters have “trashed” the capitol...[are] completely false. Members of unions, particularly the Teaching Assistants’ Association (TAA) and the Milwaukee Graduate Assistants’ Association (MGAA), have been regularly organizing volunteer crews to clean up trash and litter." Mattis adds that a sign in the Capitol Building informing visitors that firearms aren't permitted within "only emerged, after five days of entirely peaceful protests, when the Tea Party arrived."

3. Wisconsin Uprising Part of a Larger Awakening
On Sunday, economist Robert Kuttner wrote that "something important that was largely missing has been kindled. Popular protest against financial abuses, top-down class warfare, clueless Republicans, and misplaced austerity is finally in the air. The labor movement is leading, and even non-union Americans are realizing why organized labor is all about protecting the middle class generally."

Wisconsin appears to be the beginning of a larger movement, and for good reason. According to CBS News, "Nine other Republican governors from Nevada to New Jersey are also targeting unions with various proposals: decreasing wages and bargaining power in some cases, increasing what workers contribute to pensions and benefits in others."

On Sunday, we reported that America's labor movement is readying for a second show-down with union-busting legislators on Monday, as Indiana considers a so-called "right to work" law similar to that proposed by Wisconsin's governor. A South Bend Tribuneeditorial warned hoosiers to "beware of the 'right-to-work' hoax that politicians and CEOs are pushing. A right-to-work law won't help business and it won't help workers." Organizers are preparing to do battle in Ohio and Florida as well.

On February 26,US Uncut -- a grassroots coalition that's modeled on the movement that faced tuition hikes in the UK and has been called a liberal answer to the Tea Parties -- is organizing protests across the country. The theme: no austerity while corporate tax dodgers game the system. Find out more about US Uncut here -- find a local protest and mark the date.

Also, in case you missed it, check out Naomi Klein's interview with Chris Hayes here -- the two discuss why Wisconsin is so important, and touch on Uncut US's upcoming mobilization.

4. It's a Ginned-Up "Crisis," but Scott Walker Isn't Entirely to Blame for Wisconsin's Budget Gap
It's been widely reported, including on AlterNet, that Scott Walker inherited a $120 million budget surplus, and then promptly created a budget deficit in order to break the backs of Wisconsin's public employees' unions.

Politifact did an analysis of this issue which shows that Walker in fact inherited a manageable, long-term budget gap and then spun it as an imminent crisis that must be addressed this year.
The reports stem from a a Jan. 31, 2011 memo prepared by Robert Lang, the director of the nonpartisan Legislative Fiscal Bureau, that was picked up by the Associated Press and a number of other outlets. It does state that Wisconsin was on course for a surplus this year, which the media reported that in good faith. The issue is what Politifact refers to as the memo's "fine print."

[It] outlines $258 million in unpaid bills or expected shortfalls in programs such as Medicaid services for the needy ($174 million alone), the public defender’s office and corrections. Additionally, the state owes Minnesota $58.7 million under a discontinued tax reciprocity deal.

The result, by our math and Lang’s, is the $137 million shortfall.

It's important to understand that this doesn't change the fact that Walker dishonestly portrayed his union-busting bill as a budget fix, which, as you'll see below, it is not.

5. More Evidence that Walker's Bill Has Nothing to do With Wages, Benefits and the State's Budget Gap
Wisconsin Governor Scott Walker has a long history trying to break public sector unions. But last week, as the Milwaukee Business Timesreported, he insisted that "his bill was strictly based on the need to cut the budget and was not based on any political agenda." Indeed, the bill was introduced by the governor as an "emergency measure... needed to balance the state budget and give government the tools to manage during economic crisis."

The state of Wisconsin is facing an immediate deficit of $137 million for the current fiscal year which ends July 1. In addition, bill collectors are waiting to collect over $225 million for a prior raid of the Patients’ Compensation Fund.

There is a $137 million shortfall for this year. Regarding the Patients' Compensation Fund, Politifact reports that "a court ruling is pending in that matter, so the money might not have to be transferred until next budget year."

But here are three important points from the governor's release that show quite clearly that this bill has nothing at all to do with closing Wisconsin's budget gap in the near-term -- as an emergency measure that wasn't even subject to public debate.

1. "The budget repair will also restructure the state debt, lowering the state’s interest rate, saving the state $165 million." That's right, restructuring the state's outstanding debt yields more savings than the projected shortfall, and nobody is objecting to that provision.

2. "It will require state employees to pay about 5.8% toward their pension (about the private sector national average) and about 12% of their healthcare benefits (about half the private sector national average). These changes will help the state save $30 million in the last three months of the current fiscal year." Yes, those give-backs would yield less than 20 percent of what the debt restructuring would bring in. And, as I mentioned earlier, the public employees' unions offered to make those concessions in exchange for losing the provision that would bar them from negotiating their benefits package in the future, and the GOP flatly refused the offer.

3. The collective bargaining provision wouldn't kick in until after the current contracts expire, meaning that the measure would yield exactly zero savings in the current budget.

Random Lengths News' Paul Rosenberg caught this, and adds that Walker is also sitting on an "unused cache of $73 million" in the state's economic development fund -- "more than twice what’s being sought from public sector workers.”

AlterNet also reported over the weekend that while far too many pundits continue to buy Scott Walker's spin that the Wisconsin uprising is a response to the state's public employees being asked to shoulder more of the burden for their health-care and pension costs, the reality is that it's really all about the union-busting.

According to the Milwaukee Business Times, the unions have in fact agreed to all of the GOP's demands on wages and benefits, in exchange for Republicans dropping the provision that would strip them of the right to negotiate in the future:

Although union leaders and Wisconsin Democratic Senators are offering to accept the wage and benefit concessions Gov. Scott Walker is demanding, Republican Senate Majority Leader Scott Fitzgerald (R-Juneau) said today a bill taking away collective bargaining rights from public employees is not negotiable.
Democrats and union leaders said they're willing to agree to the parts of Walker's budget repair bill that would double their health insurance contributions and require them to contribute 5.8 percent of their salary to their pensions. However, the union leaders want to keep their collective bargaining rights.
"I have been informed that all state and local public employees – including teachers - have agreed to the financial aspects of Governor Walker's request," Sen. Jon Erpenbach (D-Waunakee) said. "This includes Walker's requested concessions on public employee health care and pension. In return they ask only that the provisions that deny their right to collectively bargain are removed. This will solve the budget challenge. This is a real opportunity for us to come together and resolve the issue and move on. It is incumbent upon Governor Walker to seriously consider and hopefully accept this offer as soon as possible."
However, Fitzgerald said the terms of the bill are not negotiable, and he called upon Democrats who left the state this week to stall a vote on the bill to return to the Capitol.

On a related note, Business Insider, citing research by economist Menzie Chinn, reported that "Wisconsin's public sector workers get paid LESS than the private sector." Almost 5 percent less, even including healthcare and retirement benefits.

Now, we have some quick hits:

6. Bubba Arriving on the Scene?
Mike Elk reports that rumors are swirling around the capitol that Bill Clinton may be headed to Wisconsin as an act of solidarity with the unions that helped Hillary's presidential campaign.

7. FoxedCrooks and Liars highlighted a bogus smear being pushed by Fox "News" -- one that originated, naturally, with one of ACORN-killer James O'Keefe's former associates.Raw Storyreported that "protesters shouted 'Fox lies! Fox lies!' throughout a Fox News segment on the demonstration in Wisconsin Friday."

8. Business Community Unhappy With Walker?
Mike Elk also reported that Wisconsin's local business community is showing signs of turning against Scott Walker.

9. Rage Against the Machine
The Wisconsin State Journalreports that "Tom Morello of Rage Against the Machine, Wayne Kramer, Street Dogs and other musicians just announced they'll join pro-union protesters at the Capitol" today.

10. Egyptian Workers Express Solidarity with Wisconsin's Public Workers
Michael Moore.com has posted a statement of support, "from a place very close to Tahrir Square in Cairo," by Kamal Abbas, the General Coordinator of the CTUWS, which is "an umbrella advocacy organization for independent unions in Egypt." We posted this picture over the weekend:

What You Can Do -- Big Weeks Ahead

The Wisconsin Uprising appears to be an opening shot in a genuinely grassroots push-back against the corporate Right's attack on the labor movement and, more broadly, our social safety net. We'll continue following events as they unfold.

In the meantime, you can send the protesters in Wisconsin a pizza! On Sunday, Ian's Pizza on State Street announced on its Facebook page that it was suspending its normal in-store and delivery operations "to keep up with the high volume of calls it was receiving from people all over the country and the world seeking to buy pizza for the protesters at the Capitol." According to New York Magazine, "Ian’s gave away 1,057 donated slices yesterday and delivered more than 300 pizzas. The blackboard behind the counter now has a running list of places where donations have come from, and it includes China and Egypt."